Review of open forum on ERM opportunities for pensions actuaries held on 17 March 2011
Last summer the Profession became the second body authorised to award the Chartered Enterprise Risk Actuary (CERA) qualification. A series of sessional meetings and open forums are being held to promote this qualification and the role of actuaries in the wider field of risk.
Fifty-five qualified actuaries and students attended the open forum held on 17 March at Staple Inn which consisted of two separate presentations by Paul Sweeting, Professor of Actuarial Science at the University of Kent, and Colin Ledlie, Standard Life’s Chief Risk Officer.
Paul Sweeting began by giving a history of the CERA qualification and explaining that it is awarded to Fellows and Associates who have also passed ST9. CERA is intended to be the most comprehensive and rigorous demonstration of ERM expertise available. In the aftermath of the financial crisis increasing importance is being placed on managing risk and central risk functions are becoming more prevalent in financial institutions. Pensions actuaries would also benefit from studying ST9 because extra context would help to broaden their role and add extra value.
Paul spent the rest of his presentation running through the ST9 syllabus. The exam aims to give students the tools that they would need to build a risk management framework from scratch. The course balances theory with a selection of case studies which use examples of risk management failures to highlight the issues that ERM seeks to address. Paul gave a flavour of the quantitative methods covered in the course, the highlight of which was a simple explanation of copula functions. He also made the case that extreme value theory (even easier than copulas) is a powerful tool for making the study of tail risk easier.
Colin Ledlie’s presentation combined observations drawn from his own experience at Standard Life, where he had previously been the appointed actuary, with case studies of risk management failures such as the BP oil spill, Northern Rock and Barings. Using video clips and pictures to illustrate his observations, Colin both entertained and educated his audience. He showed how people can be: very clever in, for instance, taking risks where there are incentives to exploit. Then he showed how people can also be very stupid in, for instance, demonstrating group think. He argued that managing risk is not solely a numerical exercise carried out by central risk functions. Risk management has to be carried out across the organisation by all staff all the time. Colin talked about how you create and maintain the culture needed for good risk management. This includes listening for warning voices, avoiding creating incentives for staff to make the wrong choices and segregation of duties. He concluded by setting out his philosophy – great risk management is about great conversations driving better informed decisions.
Catherine Hildebrand
Actuarial Practice Leader | Financial Management
Pension Protection Fund